The European Commission is expected to block the $145bn merger between America Online (AOL) and Time Warner, because of the publishing and entertainment giant's proposed joint venture with UK-based EMI Music.
According to reports, the Commission is concerned that the combination of EMI and Warner would create an industry controlled by four major labels: Universal Music, BMG, Sony Music and EMI/Time Warner.
Independent record companies have also voiced fears that AOL would use music as a loss leader, encouraging consumers to use its online services in return for cheap or free music. There are also concerns that AOL could end up controlling the market for music downloads.
EMI said the two companies have "proposed a balanced set of remedies" which it believes will "increase competition across the European music industry". Some of those are believed to include the sell off of some music publishing units and an agreement not to give AOL preferential treatment for the distribution of music over the web.
AOL and Time Warner said they are not fazed by the latest reports. "This is a normal part of the process with the European Union," the companies said in a statement, adding that they are "comfortable with where we are at this stage of the negotiations".
The potential merger between the online and off-line media giants has also hit US regulatory hurdles. Recent reports indicate that the US Federal Communications Commission (FCC) was expected to force AOL to open its instant messaging service, which the ISP has so far aggressively protected. The FCC also suggested that the merged AOL-Time Warner should open its high-speed cable lines to rivals.
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